Thursday, November 13, 2014

Corruption of Capitalism

Let me state at the outset that I'm a Capitalist, a
proponent of Ayn Rand’s Objectivism philosophy (1).

I came to America because
of the opportunities for growth and success in this country. I started my own
company, Action Instruments in San Diego, California. I recognized that
ownership is a significant motivator so my company had a significant level of
employee ownership. Action was featured in INC. magazine among "companies
employees love". Some 30 years later, I sold the company and retired. That
was 15 years ago.

At 77, in good health, I write and speak on futures related
topics. I have the opportunity to think on things I was too busy to consider
before. I think and write about Capitalism as a Capitalist.

It’s clear to me that the rampant spread of plutocracy
(wealth rules) over the past couple of decades is the root cause of major
problems in my adopted country, America.

Book - Selfish
Capitalism

The ultimate tragedy of Capitalism in our time is that it
has achieved dominance without being connected to any other metric for human
progress. Progress is measured only by growth and profit. Profit is the metric
by which the health of society is measured.

This is the subject of a
recent book “The Selfish Capitalist”
by psychologist Oliver James (2). His view: Capitalism is selfish.
It cultivates selfish habits and operates with the rules of selfishness. It
represents greed, an ideology of accumulating more - for me and not for you,
whoever you are. This generates never-ending competition. It intensifies the
struggle for status, access and privileges. It intensifies self-pride and envy.

A year ago before he wrote this book, Oliver James published,
“Affluenza: How to Be Successful and Stay
Sane”. (3) The book
suggests that a modern-day virus afflicts the wealthy elite. It causes obsessive,
envious tendencies and makes those who are suffering from this disease twice as
prone to depression, anxiety and addictions than others. Perhaps because he
didn’t want that book to be too large, “Selfish
Capitalist” became a companion volume.

Wealth creates more and more exclusive institutions and
relationships. It applauds selfish competition. It generates ever more complex
and artificial means of winning and profiting. It builds excuses that can
alleviate its own sense of moral and spiritual inadequacy.

It’s not just that capitalism cultivates selfish habits.
It’s that capitalism operates according to the rules of selfishness.
Capitalism, in this caricature, is greed in action, an ideology of amassing
more and better stuff for me and not for you, whoever you are.

That becomes a nasty, poor, brutish, and never-ending
politics of competition. The battle of wants operates on a number of different
levels in three interrelated ways. First, it intensifies
the struggle for status, access, and other privileges. Second, it
intensifies pride. Third, it intensifies envy. (4)

Spurred by that triple experience, the meritocratic elite
creates ever-more-exclusive sets of institutions and relationships. It
manufactures ever more complex and artificial means of winning and profiting.
And it builds mechanisms that can ameliorate its senses of inadequacy –
including moral and spiritual insufficiency – without requiring a
transformative corrective to the primacy of selfish competition.

Those outside the wealthy elite, the hangers-on, develop
warped imitations of wealth patterns. They become increasingly boastful,
aggressive, cynical and amoral. They become “wolves” that worship Hedonism.

Martin Scorsese's movie, "The Wolf of Wall Street"
is shameless, exciting, exhausting, disgusting and illuminating; it's an entertaining
film about loathsome men. (5) Frankly, I watched for about a
half-hour and simply switched off in disgust.

Politicians and
Lobbyists

Capitalism expects to do whatever it takes to succeed, and
if that means bribery, it will happily bribe. It is the government's
responsibility to keep business and industry honest and it has failed in that
duty. That failure is primarily because politicians have become embedded
with lobbyists in all directions. As soon as a politician gets elected, they
launch a re-election fund that makes them be beholden to special interests.

The courts have failed to keep government honest because
political bribery is legal. It is legal for anyone and everyone to contribute
to political campaigns. The bribes don’t formally go to politicians, but to
their campaign chests. And this can be done anonymously.

Capitalism’s Health Barometer

In a little more than a decade, the stock market has crashed
twice. Americans lost $5 trillion in the 2000 dot-com bust and more than $7
trillion in the 2007 housing crash. After completely recovering since the peak in 2007, stock
indexes keep reaching record highs.

Instead of cheering, we should be very afraid. Sooner or later, stimulated by
the Federal Reserve with phony money rather than real economic gains, this
latest Wall Street bubble will burst. The Federal Reserve has kept expanding
their balance sheet literally by several trillions. But, at the same time, economic
output has grown at less than 2% a year; real business investment crawls forward
at a snail’s pace; and the payroll job count keeps creeping, with new jobs
primarily at low-wage levels.

So, the Main Street
economy is faltering while Washington is accumulating a soaring debt burden on posterity,
unable to rein in either the warfare state or the welfare state or raise the
taxes needed to pay the nation’s bills. By default, the Fed has resorted to a
radical, uncharted spree of money printing. But the flood of liquidity, instead
of spurring banks to lend and corporations to spend, has stayed trapped in the
canyons of Wall Street, where it is inflating yet another unsustainable bubble.

When this bubble bursts, there cannot be a new round of
bailouts like the banks got in 2008. Instead, America will descend into an era
of zero-sum austerity and virulent political conflict, extinguishing even
today’s feeble remnants of economic growth. (6)

Middle Class and the
American Dream

The decades old ideas of Capitalism making America the land
of opportunity make people blind to the creeping corruption of the system.
Middle America, busy with the day-to-day business of making a living, remains
unthinking about what’s occurring.

Those who don’t have the opportunities that wealth provides,
take on a fatalistic feeling that life is simply a game that will always be
rigged and can only be played by scamming the system. Under harsh conditions,
the politics of competition causes the reactive experience of non-elites to
spread from the bottom of the socioeconomic ladder to the middle. The poor are
despised as people who are too lazy or too stupid to grasp the available
opportunities.

Over the past few years, particularly since the bursting of
the housing bubble, there have been increasing calls for middle-class Americans
to "scale down" from their private homes. Americans would be better
off not buying homes and living smaller, for the sake of their own economic situations.

The long-standing
American ideal was, "If you work hard anything is possible". But
today, the opportunity for social advancement feels increasingly out of reach
for more and more people, and for their children.

The prolific writer Joel Kotkin suggests that sparking
economic growth presents a challenge. (7)(8) It requires a shift in
priorities. It is not enough merely to blame the so-called 1%, but to shift the
benefits of growth away from the current narrow finance and high-tech sectors, and
more towards a broad array of productive enterprise.

If America really wants to confront its growing class
divide, it needs to spark broad-based economic growth, rather than simply
feathering the nests of the already rich, privileged and well connected.

28 comments:

I think you understated one key aspect, though. Finance has taken off during the past three decades and really become a major player in the American economy, taking up a big chunk of GDP. This has led to some key side effects:1) Regulatory capture (Wall Street now being a major contributor to political campaigns, and clearly avoiding serious federal regulation; criminal and semi-criminal scandals are now commonplace)2) Reduction in manufacturing capacity (it's easier to make money through finance than making stuff)3) Hollowing out the middle class (finance sector is all about the top 1% of the 1%)

Yes, Finance is a major part of the corruption and keeps growing in the power structure. They control regulations through their manipulation of politics; they were bailed out with complete impunity, while the rest of America stagnated; the scandals are now very common. When the government pursues them, they simply pay a big fine - without admitting guilt. And the game continues.

Finance does not PRODUCE anything - they just skim off the top. Manufacturing actually produces wealth, and it is left stagnating. Large manufacturing companies are now accumulating cash, but not regenerating the old levels of employment.

America's Middle Class is stagnating and declining - the most serious part of the problem.

Read Nick Hanauer's: The Pitchforks Are Coming… For Us Plutocrats:http://goo.gl/k01oGd

Or, watch his TED speech:Beware.fellow plutocrats, the pitchforks are coming:http://goo.gl/xTJgN4

Thank you for sharing this YouTube link. Nick needs to make this presentation on Capitol Hill and Wall Street. This will only work if the plutocrats actually take this message to heart and do something.

There are actually two issues being discussed here: One of them is a growing government presence that makes more and more legal complexity --and thus inhibits regular business activities.

The other is that economies are being short circuited by corruption. This becomes more practical when you look at the vastly increased complexity of regulation. It has gotten to the point where honest people do not know what to do any more.

Let me also note that these regulations, as complicated as they are, are usually intended to fix problems. There isn't a whole lot of review to ensure that they actually DO fix these problems. But the intent is there.

Unfortunately, even though we're usually aiming in a good direction, unless we can measure the result and update the regulations accordingly, we will be strung up and tangled in these laws.

This leads to those who really do not have a conscience. They just push people to do things, and damn the regulations. If they get caught, the answer is usually, "well, how was I supposed to know that?" The unfortunate truth is that they're not wrong about this. We have filled entire libraries with laws and regulations, often written in some impenetrable context or jargon, such that not even the lawyers themselves can figure out what they mean.

We need some way to introduce feedback in to our regulatory and legislative environment. This will make the laws we have more comprehensible and enforceable. And by doing so, reduce corruption and white collar theft.

As for the stratification of our society, it seems to be the nature of things with major new technologies as they percolate in to society. It has happened in the past with steam and the electric technologies. It is happening now. Some are being put out of work. Others are overworked.

The solution is to find out where the functionality of that new technology is still needed and to find those niche markets where it is still needed, so that the economy can stabilize a bit and people can find work where it is most profitable. When that happens, we can set standards, and legislate based upon newly prevailing social norms.

I wholeheartedly agree with your 2 key causes: Growing government and increased legal complexity; corruption at the highest levels.

In most third-word countries, corruption is everywhere. In America, it is widespread ONLY at the very top - politicians and lobbyists. Try bribing a policeman and he'll take you to jail. Politicians are easy targets -bribed by lobbyists and the rich everyday!

This toppling of plutocracy (revenge of the masses) has happened often throughout history, dating back to the Roman Empire, the French revolution and many more.

Instead of just being critical, I am trying to focus on solutions. But, the available solutions seem far-fetched and unlikely. Example: Re-election campaigns are a serious part of the problem; one cannot imagine Congress passing laws that limits themselves to just one or two terms.

Jim,Your post hits a nerve, as usual. As many have done before you, not always as concise, you have illustrated past and current manipulative activities that are bound to result in a major explosion - possibly soon.

When I read things like this, I question my own past thoughts about how the 'crazies' train in the woods to be ready for the time when the Guv'mint comes to take away our last freedoms. Maybe these folks are not crazy after all - maybe they are this era's freedom fighters.

When the middle class is finally absorbed into the poorest masses, the ice berg must topple. Socially engineered inequality breeds revenge. This may become a kind of communist revival, where the masses are better off if the elite's heads are lopped off and the wealth is divided evenly. Then of course, those who contribute more want to be rewarded more ... and so the cycle restarts.

The only alternative is that those who are in a position to effect things, recognize this and change the direction. Unfortunately: a/ that is very hard to do, and b/ they are part of the elite and not motivated to sink their own ship.

That 'elite' may get a nasty surprise when the pitchforks come out and the peasants cross the moat. Not literally, perhaps, but the modern day version of that is bound to happen. And it probably won't be pretty.

But they aren't, really.In the United States, there is next to no political traction for criticizing the 1%. Both political parties are largely purchased.Europe has seen some unrest in the south (Greece, Spain), but it's been controlled.

No, we peasants have kept our pitchforks in the fields so far. That's one of the major stories of our era.

I have come to the conclusion that nothing will change until we peasants do indeed revolt and make some radical changes that the elite most certainly will not like.It seems that the greed of the elite has no limit.Once one has acquired a certain amount of wealth does it really make sense to really keep acquiring more .one can only spent so much in one's lifetime.We all came into this world with nothing and will leave the same way.

Wow! "The pitchforks are coming" is a recurring theme throughout these blog responses.

There are those among the wealthy have recognized that they "came into this world with nothing and will leave the same way." Examples are Bill and Melinda Gates who are involved in major help in many poor countries; Warren Buffet, who donates through Bill Gates' charity activities. And many others.

The primary problems are the wealthy-wanna-be hangers-on. They become increasingly boastful, aggressive, cynical and amoral. They think that's the way to get rich.

I think you raise some very valid and important points. You couch them well and the life you have chosen to live gives credibility to your well balanced position on capitalism.

Having identified these problems, where lies our solution? Is adequate reformation possible or is a revelation the eventual outcome? How will our American culture adapt? What internal integration is required? What external adaptations must occur simultaneously? Can the present socio-economic system be transformed to one that will be more stable? If so, then how?

Thank you for sharing your thoughts, creating dialogue, and inspiring others to think.

Capitalism is not selfish. People are selfish. Capitalism is a system that channels their selfishness into socially desirable outcomes (see Adam Smith). Incidentally, all higher forms of mammals (apes, elk, etc.) are also selfish and greedy, desiring more than an equal share.

Nor does capitalism cultivate selfish habits. It recognizes they exist. No alternatives have been anywhere near so successful. Consider the old saw, "we pretend to work and they pretend to pay us," an adequate description of socialism. All other forms of social organization discourage innovation.

Capitalism does, however, require several things from government. First government must maintain a system where the market (customers) are free to purchase from whomever they want. Thus there must be free competition, not monopolies. Second, there needs to be some minimum safety net. And third, there must be no cheating allowed. Then government needs to stay out of the way.

Many of our current problems are not because of capitalism but because we allow and encourage cheating. This post is far too short for a discussion of Glass Steagall repeal, however, or how the Obamunists' regulations have hurt small companies at the expense of large campaign contributors, or have forced manufacturing to go offshore.

I'm sorry you could not watch the "Wolf of Wall Street." But it wasn't about capitalism. It was about some guys breaking the law. If you'd watched it to the end, you would have seen them get their comeuppance.

We know each other well - through your predictable responses to similar thoughts I have expressed through my JimPinto.com eNews.

Yes, Capitalism is not supposed to be selfish - but many Capitalists don't understand this and think it is their "inalienable right" to make more and more money by any means possible. And they resent any attempts to level the playing field - hence corruption, lobbyists, bribery. This is wide spread. Do you ignore that?

I had thought that my opening comment in this blog, "Let me state at the outset that I'm a Capitalist, a proponent of Ayn Rand’s Objectivism philosophy" would have satisfied those like you that think my ideas are "socialistic".

My friend, please STOP that line of non-productive discussion. Please go beyond that blockage and focus on practical solutions. Please support the American Anti-corruption Act: http://anticorruptionact.org/

Yes, I agree - "Many of our current problems are not because of capitalism but because we allow and encourage cheating. " So, who "allows" and "encourages" it? I will NOT engage in a non-productive debate on Obama.

So, the "Wolves of Wall Street" got their "comeuppance" in the movie. I cannot stomach watching the whole movie just to witness the "comeuppance".

Have you read or are you reading the many, many comments in this blog? Please review Nick Hanauer's: The Pitchforks Are Coming… For Us Plutocrats: http://goo.gl/k01oGd - I'd like very much to hear from you after you read and digest that.

I do not understand your article. You say you are a Capitalist, a proponent of Ayn Rand's philosophy. Yet, you have in your article all the major misinterpretations of Objectivism. Have you read the actual literature on Objectivism? I suggest starting with the following:

Atlas ShruggedCapitalism: The Unknown IdealThe Virtue of Selfishness

All of these are by Ayn Rand. Two other excellent books by other writers are:

I suggest reading the Overview of Objectivism in the last link. It is an excellent summary of the philosophy.

I have mentioned this before in your blog but possibly did not get my point across. Objectivism is based upon a government whose function is to defend individual freedom in two ways. The first is preventing any individual or group from using force or the threat of force against any other individual. Thus we have a police force, courts and other government organizations to implement this freedom.

The second function is to protect our country from foreign enemies. Thus we have the armed services, and the other government organizations to implement this freedom.

Given these government functions, you can see that the present government has taken on functions that are morally wrong such as laws regulating business functions, tax laws, laws against victimless crimes, etc.

If the government kept to its true functions, we would not be in such a mess we are in today. The wealthy would not be able to influence government to pass laws and regulations that they desire, anyone would be able to start a business without having to follow hundreds of regulations (assuming this business did not harm anyone), you would be free to spend your money as you wish, and so on.

Yes, I know all this requires much more detail to make sense and to be reasonable and rational, but this blog is not appropriate for all that detail. That is why I listed the books and websites that I did.

You may have missed my opening statement: "Let me state at the outset that I'm a Capitalist, a proponent of Ayn Rand’s Objectivism philosophy". If you did indeed read it, then you think that you understand Objectivism and I don't. That is somewhat narrow-minded and presumptuous.

I have read ALL of Ayn Rand's books - Atlas Shrugged at least 3 times. I have John Galt's lengthy speech in my Dropbox (to read when I have a chance, on any of my computers). And I am very familiar with the websites you mention. Indeed, I included one (Ayn Rand Institute – Campus) in my Reference links at the end of the blog.

You are mistaken in your presumption that I support the US government and all of its bloated bureaucracy.

What is am drawing attention to is the corruption of Capitalism through lying, cheating, stealing, bribery on the part of government, politicians, lobbyists, and business people who think they are immune to the laws that regulate such activities. Indeed, if things were not as corrupt are they ARE, the wealthy would NOT be able to influence politicians to pass laws that favor their own interests.

I am a great admirer of Ayn Rand's Objectivism. But sadly, it does not take into account warped ideas of "selfishness" that prevail widely among the wealthy and wanna-be-wealthy in our so-called Capitalistic country. It is NOT selfishness I resent, but the corrupt ideas that are destroying our country.

This does not take "more detail" and the reading of several "books and websites" to understand. What masquerades as Capitalism in my beloved, adopted country, America has become corrupt to to the core.

There is just one book I recommend for you, referenced in the blog: The Selfish Capitalist: http://goo.gl/wuHw7p I challenge you to read it!

You are correct. I misunderstood the objective of the article for which I apologize. When I read your article, it sounded similar to the material I read too much of concerning the problems in our country - that you summarize well - along with the solution which is bigger government controlling more of our lives in every detail.

Your final paragraph says the following: "If America really wants to confront its growing class divide, it needs to spark broad-based economic growth, rather than simply feathering the nests of the already rich, privileged and well connected."

However, it does not say how to do that. Obama would say we can do that by passing more laws regulating this and controlling that. The goal is a "Brave New World" where all is controlled, and freedom is a meaningless word.

I have already briefly stated my solution. This solution is discussed in much more detail in "Free Market Revolution." I highly suggest this book.

I appreciate the response and accept your apology. Do me a favor - take the time to read each and every response to this blog. And my responses.

Clearly, the solutions do NOT include bigger government, more complex regulations, increased controls for everything. I am very much against all those things.

I am seeking solutions. Here are just 3:

1/ Politicians elected for just one (maybe two) terms. Allowing congress people to serve several terms was instituted, I believe, by President Woodrow Wilson, circa 1912. That was a BIG mistake. But how can that be reversed? Congress people will never vote themselves out of office.

2/ Today, there are some 25-50 lobbyists for every person in congress. Eliminating (or at least reducing) the number of lobbyists. How can that be accomplished?

3/ Throwing more corrupt leaders in prison. Today, the BIG banks and financial institutions simply pay multi-billion$ fines, without ANY admission of guilt. And no one goes to jail! And the fines are simply buried as "accruals" in their balance-sheet. No single individual is penalized.

Can you come up with any more practical solutions? That's what you and I should be thinking about, rather than dwelling on esoteric and idealistic principles.

No solution will work without a change in thinking by the media which influence this country. And the media learned their socialistic and nihilistic ideas in the colleges. Most professors are socialists or post modernists.

Yes, we need a philosophical change. Nothing else will work. It has happened before. We didn't arrive where we are by chance. It started with Plato and Kant and Hegel and Marx and Dewey...

Some day it may start with Ayn Rand and the growing number of students and professors that believe her philosophy.

No solution will work without a change in thinking by the media which influences this country. The media learned their socialistic and nihilistic ideas in the colleges. Most professors are socialists or post-modernists.

Yes, we need a philosophical change. Nothing else will work. It has happened before. We didn't arrive where we are by chance. It started with Plato and Kant and Hegel and Marx and Dewey...

Some day it may start with Ayn Rand and the growing number of students and professors that believe her philosophy.

Possibly this is too long-term or not practical enough. For some practical stuff, have congress start repealing all the regulations they passed in the last few years - and not pass additional laws.